In: Accounting
Shown below is activity for one of the products of Weasel:
January 1 balance, 220 units at $50 for a total of $11,000
Purchases: January 10-200 units at $42
January 20-500 units at $55
Sales: January 12-350 units
January 28-425 units
1. Compute the ending inventory and cost of goods sold assuming Weasel uses LIFO and a periodic inventory system.
2. Compute the ending inventory and costs of goods sold assuming Weasel uses average cost and periodic inventory system.
Please Show all Work
Under LIFO and Periodic Inventory system
Cost of Ending Inventory
Since the Weasel is using LIFO periodic system, the 145 units in ending inventory would be costed using the earliest purchasing costs. The computations are given below:
Earliest Cost: January 1(Beginning Inventory):
145 units@50 $7,250
Total cost of 145 units (Ending Inventory) $7,250
Cost of goods sold
The cost of goods sold is equal to the cost of units sold during the year.
Cost of goods sold = [Cost of units in beginning inventory + Cost of units purchased during the period] – Cost of units in ending inventory
Cost of units on Jan 1, (Beginning Inventory):
220 units@50 per unit $11,000
Add Cost of units purchased during the year
200 units purchased @42 per unit $8,400
500 units purchased @55 per unit $27,500 $35,900
Less: Cost of units in ending inventory ($7,250)
Cost of 775 units sold during the year $ 39,650
Number of units sold during the year = Units in beginning inventory + Units purchased during the year – Units in ending inventory
=220+200+500-145
=775 units
Most recent Cost; Jan 20:
500 units@55 per unit $27,500
Next most recent cost; Jan 10:
200 units@42 per unit $84,00
Next most recent cost; Jan 1:
75 units @50 per unit $3,750
Cost of 775 units sold during the year $39,650
Under Average cost and Periodic Inventory system Method
Units | Cost | Amount | |
Jan 1 Beg Inventory | 220 | 50 | $11,000 |
Jan 10 Purchases | 200 | 42 | $8,400 |
Jan 20 Purchases | 500 | 55 | $27,500 |
Total Purchases | 920 | $46,900 | |
Units | Sales Price | Sales Amount | |
Jan 12 Sales | 350 | ||
Jan 18 Sales | 425 | ||
Total Sales | 775 | ||
Average cost was calculated as total value of beginning inventory and purchase $46,900/920.
Total units in beginning inventory and purchased to get $50.97
Average Cost =$46,900/920
=$50.97
This average cost can then be applied to the 775 units in sales during January and would be calculated as 775 units x $50.97 which is equal to 39,501.75
Cost of goods sold= 775 units*$50.97
=$39,501.75(approx)
Ending Inventory =145 units @ $50.97
=$7390.65(approx)
Amount would be same in case of average cost method if the figures get rounded off.